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ON A RAIN-DRENCHED AFTERNOON LATE last week, Michael Shvo, a renowned megabroker of Manhattan apartments, showed up at 20 Pine Street to answer our questions about the troubled development.

A stone's throw from the New York Stock Exchange, 20 Pine once seemed a symbol of the area's post-9/11 renaissance, sprouting Armani-designed apartments with oversized windows, exotic woods and recessed, virtually silent shower heads. Where Chase Manhattan built a vault for its first headquarters, there is now a swimming pool and Turkish bath. But for all its virtues, 20 Pine is starting to look like just another victim of New York's luxury-housing bust.

Reports have circulated that the owner of the 409-unit building, Boymelgreen Developers, may unload 80 apartments for just $652 per square foot, about half the current asking prices. Shvo, 36 and perfectly coiffed, acknowledged the existence of "20-25 offers from bottom fishers," some as low as $600 per square foot. But the offers didn't seem to concern him. "The developer," he sniffed, "isn't interested."

Not yet. First came Miami, Las Vegas and Phoenix. Now Manhattan's high-end housing market is cratering. With Wall Street firms stepping up layoffs, and money for big-ticket mortgages drying up quickly, prices for new york apartments and townhouses of $5 million or more have been falling and may well drop by another 30% before finally bottoming out. That could help turn the Big Apple into the ugliest housing market in America.

While Barron's reported three months ago that the New York luxury market was headed for trouble ("Sand Castles," Nov. 24, 2008), the outlook has become notably worse, with some experts citing the bankruptcy of Lehman Brothers as the breaking point.

The local economy is reeling as the securities industry moves to cut some 46,000 jobs by the summer of 2010. Affluent investors have pulled back from house shopping to nurse wounds inflicted by the stock market. Even that most voracious of buyers -- the hedge-fund manager -- has lost his appetite, as angry investors yank their money from his funds.

PRICE CUTTING HAS BECOME SAVAGE. The 14-room Park Avenue apartment of the late socialite Brooke Astor -- which Barron's highlighted in that earlier story after its price had been cut from $46 million to $34 million -- is now down to $29 million and probably has to be cut further.

Prices for Manhattan town houses and apartments continue to slip as the demand for such types of housing drops. Will Manhattan turn into the newest ugly housing market in America? Barron's Leslie Norton reports.

But even with dramatic reductions like that, the inventory of unsold luxury housing is ballooning. Streeteasy.com, a Website that pulls together listings and insights from a variety of brokers and buyers, now shows 795 New York apartments offered for $5 million or more, up from 518 a year ago.

Detailed data on that top tier of sales are hard to come by, but the price trends are thought to be similar to those in the mainstream luxury market, defined as the top 10% of home sales. Using that yardstick, the median sales price of a Manhattan luxury apartment topped out at about $5 million in the first quarter of last year -- well after the national housing market came unglued -- and then fell nearly 20% by the end of the third quarter, according to Miller Samuel, a real-estate appraisal firm.

In December, says Jonathan Miller, the firm's president, contract prices were 20% lower than in August, all but assuring sharp drops in closing prices in the months ahead. Nowadays it isn't unusual to hear anecdotes about potential buyers backing out of deals and abandoning down payments as large as $500,000, worried that a property's price could fall by much more.

Buyers clearly were wary of signing on the line. The number of new contracts for luxury properties dropped 40% in the fourth quarter, says Sofia Kim, research chief of StreetEasy. At the same time, inventory rose 65%. "We're years away from full recovery," Kim says.

MAKE NO MISTAKE, PRICES are still staggering. The average Manhattan apartment -- counting all price levels -- sells for $1.6 million. The most expensive for sale, at least publicly, is a penthouse at 25 Columbus Circle, otherwise known as the Time-Warner Building. This is listed for $65 million by the brokerage Brown Harris Stevens. But that doesn't include so-called quiet listings, like the apartment of a Nu Skin Enterprises executive, who wants to sell her penthouse for $80 million through Sotheby's, as the New York Observer recently reported.

Realty brokers, the industry's natural cheerleaders, are now unabashedly glum about the high-end market. "The $5 million-and-above market is inventory-rich and buyer-poor," says Dolly Lenz, a broker to the stars and vice chairman at Prudential Douglas Elliman.

The price of a property, she says, "has to be 25% off the last sale for it to be a bargain. People have no sense of urgency. A sense of urgency is what the real-estate market needs as a stimulus."

In short, the market is almost unrecognizable from a year ago. "People used to call and say 'I have a Russian,' and that meant you were supposed to drop everything," says Leighton Candler of Corcoran Group, another top broker. That's changing: The ruble buckled and so did oil. And the dollar is up sharply, making U.S. prices all the more expensive.

Says marketing chief Louise Sunshine of the residential developer Alexico Group: "We have definitely noticed a switch from international buyers to more of a U.S.-based and local purchaser base."

The damage in Manhattan is spreading well into the suburbs-from Saddle River, N.J., to Greenwich, Conn., to South Hampton, N.Y.

In 2008, the median price of a single-family home in Fairfield County -- Connecticut's most expensive locale -- fell 12.8% to $522,000, while sales plunged by 31%, according to Boston-based Warren Group. On Long Island, the median price fell 10% just in the fourth quarter, including a 14% drop in the Hamptons region, reports Miller Samuel.

In New York's Westchester county, sales of single family homes fell 30% in the fourth quarter, and the median sale price fell 11%, according to the Westchester-Putnam Multiple Listing Service.

The high end of the greater New York market "has been holding up better than that in many of the larger metro area markets," says Celia Chen, the housing economist at Economy.com. But she sees continued drops ahead for luxury and other housing in and around the city.

"House-price depreciation in New York will likely be greater than the national average this year, as the impact of the lost jobs on Wall Street hits" the local economy, Chen says.

Indeed, Ivy Zelman, a former Credit Suisse analyst who was among the first to call a national housing bust, figures that the New York housing market is headed straight down.

"When we look at New York City, we look at a price-income ratio that historically has been four times income, versus three times nationwide," says Zelman, who now runs her own firm. At 7.7 today, that ratio is "significantly higher than normal" because prices have only started falling. "If you want simply to get back to the median, it would be a 46% correction," says Zelman.

She adds: "If I had to pick one market in the country with the most challenge and the most substantive rate of decline [ahead], it's New York City. It has the greatest number of job losses among the higher earners."

Over the years, Zelman's bleak views have earned her the sobriquet Poison Ivy. But other analysts are starting to reach conclusions similar to hers. A recent report by Goldman Sachs suggested New York condo prices would need to fall between 35% and 44% to return to a "neutral" valuation level.

TWO OPULENT DEVELOPMENTS MARKED the apex of the luxury market: The refurbished Plaza Hotel at Fifth Avenue and Central Park South, and 15 Central Park West, a completely new development near Columbus Circle on the site of the former Mayflower Hotel. At one time, both fetched more than $4,000 per square foot, and were snapped up sight unseen on the strength of floor plans, architect renderings, and materials samples.

Both have suffered lately, but one much more than the other.

At 15 Central Park West, one of the most successful launches ever in the city, a 40th floor penthouse owned by developer Amit Ben-Haim recently relisted for $47.5 million. That's down from $80 million last fall when, according to the blog Real Estalker, Alex Rodriguez was interested in buying it. But it's still more than twice what Ben-Haim paid for it last April. And in today's market, that's a strong showing.

Then there's the Plaza. Large, ornate and landmarked -- and beloved by many who read the children's book Eloise by Kay Thompson -- this building has lately been the object of embarrassing litigation. Andrei Vavilov, a former Russian deputy finance minister, sued the building's developer after buying the penthouses without seeing them first and then finding them to be "glorified attic space." The developer, El-Ad Properties, has reportedly settled after a lengthy dispute.

Punch the Plaza's address, 1 Central Park South, into StreetEasy, and you see 29 listings, most above the 12th floor. The price for a three-apartment combination, according to the site, was just cut by $4.1 million, to $42.4 million.

The broker, Carrie Chiang of Corcoran, also represents three other apartments, including a corner-unit for $25.7 million, and two two-bedroom units for $10.8 million each. Chiang claims she has "two major buyers" for the larger apartments, though they haven't signed contracts yet.

A leisurely stroll through open-house showings on the Upper East Side suggests that the inventory in the $5 million-plus market extends well beyond Fifth and Park Avenues. All the way over by First Avenue, for instance, there's the Laurel, a new "green" building with a triathalon center and a $6.1 million penthouse with a dizzying view of the 59th Street Bridge.

Then there's the as-yet-unbuilt Charles, designed by David Collins, architect of the London Hotels. In an office at the site, a buoyant young saleswoman offers cappuccino and enthusiastically displays renderings and touts various amenities like a building sommelier.

The biggest problem is clearly new development, including condo conversions. One such conversion is Manhattan House, an enormous white brick building on east 66th Street that, as its marketing campaign has noted, once was home to Grace Kelly. The developer battled with renters after it bought the building for $625 million in 2005. So far, third of the apartments have been sold.

One of the thorniest issues for the New York market is mortgage availability. Though high-end buyers historically have paid mostly or entirely in cash, more now need to borrow -- just when large mortgages have all but vanished.

Many of the home mortgages in Manhattan are "super jumbo" loans, meaning $650,000 and up. And the key super-jumbo lenders -- Citibank, Chase and Wells Fargo -- have curbed lending because the secondary market for the loans has shut down.

Lenders generally won't extend any mortgage unless half the building's apartments are sold -- an obvious problem for the newer buildings -- and down-payment requirements look to be getting stiffer by the week. For apartments of more than $5 million, it's usually at least 30%, says Melissa Cohn, the president of Manhattan Mortgage, a major lender.

SO WHAT'S TO LIKE ABOUT THE MANHATTAN market? Some extraordinary properties that might not come on the market again for years may be available at cut-rate prices. At 1020 Fifth Avenue, Leighton Candler marked a penthouse down to $39 million; last year, the estate that owned the apartment wanted to price it at $50 million. "We are actually working on a contract," Candler says.

The problem is that nobody knows for sure just how much further prices might fall. "It's a 'cart before the horse' discussion," says Jonathan Miller of Miller Samuel. "Credit has to stabilize and liquidity returned to the market before we can talk about stabilized housing markets and 'bottoms.' ...It will be a multi-year period for things to sort themselves out."

Michael Shvo, the broker for 20 Pine Street, thinks that prices across the city will have to come down further, and credit will have to become more available, before demand picks up. How far will prices fall? "Certain projects will be down 50% from the peak; Certain others will be down 30%." Most, in all likelihood, will be somewhere in between.